Dennison v. Rosland Capital LLC

47 Cal.App.5th 204

260 Cal.Rptr.3d 675

William DENNISON, Individually and as Trustee, etc., et al., Plaintiffs and Respondents,

v.ROSLAND CAPITAL LLC et al., Defendants and Appellants.

B295350

Court of Appeal, Second District, Division 8, California.

Filed April 1, 2020

Lewis Brisbois Bisgaard & Smith, Lann G. McIntyre, Tracy D. Forbath, San Diego, Craig Holden and Sudhir L. Burgaard, Los Angeles, for Defendants and Appellants.

The Berman Law Firm and Bruce A. Berman, Los Angeles, for Plaintiffs and Respondents.

GRIMES, J.

This is an appeal from an order denying a motion to compel arbitration. Plaintiff William Dennison made four purchases of precious metals from defendant Rosland Capital LLC, then sued Rosland Capital and its sales agent Matthew M. Smith, alleging they misled him. Defendants moved to compel arbitration pursuant to their Customer Agreement. The trial court found the contract was procedurally and substantively unconscionable, and denied defendants’ petition. We agree and affirm.

BACKGROUND

In September 2018, Mr. Dennison sued defendants in his individual capacity, and in his capacity as trustee for the Dennison Family Trust. The first amended complaint alleged that in 2016, Mr. Dennison contacted Rosland Capital after seeing its television commercials promoting investment in precious metals. At the time, he was 82 years old, and had no experience investing in metals. Mr. Smith discussed the risks Mr. Dennison faced if he kept his retirement funds in the bank and the profit he could secure if he invested with Rosland Capital. Soon thereafter, Mr. Dennison signed and returned documents he received by FedEx from Mr. Smith, with a check for $49,982. In return, Mr. Dennison received 40 gold and 322 silver coins.

After Mr. Dennison’s first investment, Mr. Smith repeatedly called him, encouraging him to make further investments. Mr. Dennison placed additional orders for $50,000 in September 2016, $49,500 in March 2017, and another $49,968 a week later. The coins he bought from Rosland Capital were worth significantly less than what Mr. Dennison paid for them.

Defendants filed their petition to compel arbitration in December 2018, arguing all of plaintiffs’ claims were subject to arbitration based on the Customer Agreement Mr. Dennison signed when he placed his first order. Defendants also sought their attorney fees and costs of $7,300 for having to bring their petition to compel arbitration.

Appended to their petition was a copy of the Customer Agreement. The standard form agreement is two pages long, in two compressed side-by-side columns, printed in extremely small font. It is impossible to read without a magnifying glass.

When the font size is increased by 150 percent, one can see that Paragraph 15.5 of the agreement provides: "Customer agrees to arbitrate all controversies between customer and Rosland (including any of Rosland’s current or former officers, directors, managers, members, employees or agents) arising out of or relating in any way to the products or this agreement, including the determination of the scope or applicability of this agreement to arbitrate...." (Capitalization omitted.)

Plaintiffs opposed the petition, arguing the Customer Agreement was procedurally and substantively unconscionable, and therefore the arbitration clause was unenforceable.

Mr. Dennison’s declaration in support of the opposition testified that he is a retired Navy aviator, and in April 2016, he saw Rosland Capital’s television commercials warning about stock market volatility and inflation, and touting the security of investing in precious metals. He responded to the ads, and received a call back on April 29, 2016 from Mr. Smith, an account representative with Rosland Capital. The call lasted for more than 30 minutes.

Mr. Dennison told Mr. Smith he was a retired widower in his 80’s, and that he was interested in learning about silver investments. Mr. Smith explained that investing in precious metals would hedge against the risks faced by keeping retirement savings in the bank and that there was never a better time to invest in precious metals. Mr. Smith held himself out as an expert, promising to advise Mr. Dennison on how to successfully invest. Mr. Smith never mentioned a customer agreement, nor did he tell Mr. Dennison he would receive documents to sign that would strip Mr. Dennison of his legal rights.

Within a few days, Mr. Dennison received a FedEx package from Mr. Smith. He signed the enclosed documents and returned them with a check for $49,982 to Rosland Capital using the self-addressed envelope Mr. Smith included in the package.

Defendants argued in their reply brief the Customer Agreement delegated to the arbitrator the authority to decide if the agreement is unconscionable; the agreement is not unconscionable; and any unconscionable provisions may be severed from the agreement.

The trial court found the delegation clause was not enforceable, the contract was procedurally and substantively unconscionable, and the arbitration clause could not be made enforceable by severing the unconscionable provisions of the contract. The trial court denied the petition.

This timely appeal followed.

DISCUSSION

Code of Civil Procedure section 1281.2 requires a trial court to grant a petition to compel arbitration "if [the court] determines that an agreement to arbitrate the controversy exists." (Ibid .) The party seeking to compel arbitration has the initial burden to plead and prove the existence of a valid arbitration agreement that applies to the dispute. Once that burden is satisfied, the party opposing arbitration must prove any defense to the agreement’s enforcement, such as unconscionability. (Ibid. ; see also Avery v. Integrated Healthcare Holdings, Inc. (2013) 218 Cal.App.4th 50, 59, 159 Cal.Rptr.3d 444.) On appeal from the denial of a petition to compel arbitration, we apply the de novo standard of review if the trial court’s ruling rests on a decision of law, and the facts are undisputed. ( Avery, at p. 60, 159 Cal.Rptr.3d 444.)¹

1. The Arbitration Agreement Does Not Clearly and Unmistakably Delegate Authority to the Arbitrator to Decide Unconscionability.

Under California law, it is presumed the judge will decide arbitrability, unless there is clear and unmistakable evidence the parties intended the arbitrator to decide arbitrability. ( Aanderud v. Superior Court (2017) 13 Cal.App.5th 880, 891-892, 221 Cal.Rptr.3d 225.) The arbitration clause here provides in pertinent part that the "Customer agrees to arbitrate all controversies between customer and Rosland ... arising out of or relating in any way to the products or this agreement, including the determination of the scope or applicability of this agreement to arbitrate ." (Italics added & capitalization omitted.) However, paragraph 15.11 of the Customer Agreement provides: "The terms and provisions in this Agreement are severable. If any provision of this Agreement is held by a court of competent jurisdiction to be void, invalid, or unenforceable , then that provision will be enforced to the maximum extent permissible and the remaining terms and provisions of this Agreement will continue in full force and effect." (Italics added.)

Where, as in paragraph 15.11 of the Customer Agreement, a contract includes a severability clause stating a court of competent jurisdiction may excise an unconscionable provision, there is no clear and unmistakable delegation to the arbitrator to decide if the arbitration agreement is unconscionable. ( Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 891, 893-894, 71 Cal.Rptr.3d 854 [arbitration agreement did not clearly provide issues of enforceability were to be decided by the arbitrator due to severability provision that " ‘any provision of this arbitration agreement shall be determined by the arbitrator or by any court to be unenforceable....’ "]; Parada v. Superior Court (2009) 176 Cal.App.4th 1554, 1566, 98 Cal.Rptr.3d 743 [" ‘although one provision of the arbitration agreement stated that issues of enforceability or voidability were to be decided by the arbitrator, another provision indicated that the court might find a provision unenforceable’ "]; Hartley v. Superior Court (2011) 196 Cal.App.4th 1249, 1257-1258, 127 Cal.Rptr.3d 174 [same]; cf. Aanderud v. Superior Court , supra , 13 Cal.App.5th at pp. 893-894 [distinguishing Baker , supra , on the basis that the arbitration provision at issue "here expressly states that any disputes, which include those over the scope and applicability of the arbitration provision, are to be resolved through binding arbitration except those within small claims court jurisdiction. Since arbitration is not at issue in a small claims court action, the small claims court can only find unenforceable provisions ... other than the arbitration provision. Thus, when the severability clause provides for severance of any provision ..., the court being referred to is the small claims court, which is not empowered to determine the scope or applicability of the arbitration provision."].)

We therefore determine it was for the court, and not the arbitrator, to determine arbitrability.

2. The Arbitration Agreement Is Unconscionable.

Unconscionability is determined based on the unique factual situations of each case. ( Walnut Producers of California v. Diamond Foods, Inc. (2010) 187 Cal.App.4th 634, 644, 114 Cal.Rptr.3d 449 [" ‘[W]hile unconscionability is ultimately a question of law, numerous factual inquiries bear upon that question. [Citations.] The business conditions under which the contract was formed directly affect the parties’ relative bargaining power, reasonable expectations, and the commercial reasonableness of the risk allocation as provided in the written agreement.’ "].)

Unconscionability has both a procedural and a substantive element, the former focusing on "oppression" or "surprise" due to unequal bargaining power, the latter on "overly harsh" or "one-sided" results. ( Armendariz...